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Financing for Development:“Rethinking the Role of National Development Banks”

Presentation at the UN-ECE/UN-DESA Meeting of Experts on“Financing for Innovative Development”

(Geneva, 3-4 May 2007)

byAlexander Trepelkov

Deputy Director, Financing for Development OfficeDepartment of Economic and Social Affairs

United Nations

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Mandate

Multi-stakeholder Consultations

Key Messages

Overview

Mandate

Next Steps

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Mandate

Monterrey Consensus onFinancing for Development

Mobilizing domestic financial resources for development“We recognize the need to strengthen and develop the domestic financial sector, by encouraging the orderly development of capital markets through sound banking systems and other institutional arrangements aimed at addressing development financing needs …” [para.17]. “Development banks, commercial and other financial institutions, whether independently or in cooperation, can be effective instruments for facilitating access to finance …” [para.18].

Mobilizing international resources for development“We urge businesses to take into account not only the economic and financial but also the developmental, social, gender and environmental implications of their undertakings. In that spirit, we invite banks and other financial institutions … to foster innovative developmental financing approaches.” [para.23]. “We will support new public/private sector financing mechanisms, both debt and equity, for developing countries and countries with economies in transition, to benefit in particular small entrepreneurs and small and medium-size enterprises and infrastructure.” [para.24].

Addressing systemic issues“We also underscore our commitment to sound domestic financial sectors, which make a vital contribution to national development efforts, as an important component of an international financial architecture that is supportive of development.” [para.53].

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Mandate

2005 World Summit Outcome

“We reaffirm the Monterrey Consensus and recognize that mobilizing financial resources for development and the effective use of those resources in developing countries and countries with economies in transition are central to a global partnership for development in support of the achievement of the internationallyagreed development goals, including the Millennium Development Goals.” [para.23].

UN General Assembly resolution 61/191

“Decides that the Follow-up International Conference on Financing for Development to Review the Implementation of the Monterrey Consensus will be held in Doha, Qatar in the second half of 2008…” [para.1].

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Overview

Multi-stakeholder Consultations

Key Messages

Mandate

Next Steps

Overview

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Overview: Definition and Lines of Activity

NDB: “Financial institution primarily concerned with offering long-term capital finance to projects generating positive externalities and hence underfinanced by private creditors”.

NDBs often design and implement their objectives through: (i) Appraising economic and social impacts of projects that seek financing; (ii) Accompanying investors over the long run through long-term loans; (iii) Assisting sectors that are key to growth through technical cooperation; (iv) Attracting investors by playing a role of catalyst for large operations; and (v) Alleviating negative impact of crises through counter-cyclical financing.

Since 1990s, NDBs’ lines of activity evolved significantly as a result of globalization and a reshuffle of national development banking strategies.

NDB: “Financial institution primarily concerned with offering long-term capital finance to projects generating positive externalities and hence underfinanced by private creditors”.

NDBs often design and implement their objectives through: (i) Appraising economic and social impacts of projects that seek financing; (ii) Accompanying investors over the long run through long-term loans; (iii) Assisting sectors that are key to growth through technical cooperation; (iv) Attracting investors by playing a role of catalyst for large operations; and (v) Alleviating negative impact of crises through counter-cyclical financing.

Since 1990s, NDBs’ lines of activity evolved significantly as a result of globalization and a reshuffle of national development banking strategies.

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Overview: A Pyramid of National Development Banking

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Overview: The Five A’s of National Development Banking

Foster understanding of counter-cyclical potential of NDBs

Acting individually or in cooperation with RDBs, NDBs can provide financing even at times of crisis, thus producing counter-cyclical effects.

Financial crisesAlleviate

Provide and pool knowledge and expertise

Technical assistance is an increasingly important part of NDBs’ activities to support the productive sector and foster export industries.

Productive SectorAssist

Develop a role of catalyst for large financing operations

By acting as catalysts, NDBs are instrumental in attracting foreign investors, guarantors and counter-guarantors, regional and multilateral financial institutions.

CapitalAttract

Offer adequate long-term products on a sustainable basis

By providing long-term financing, NDBs are key sources of funding for infrastructure projects.

InvestorsAccompany

Reconcile development goals and sustainable lending policies

A unique feature of NDBs is that they take into account not only financial returns, but also economic, social and developmental impact of a project.

Projects Appraise

ChallengeMechanismTargetAction

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Multi-stakeholder Consultations

Key Messages

Overview

Mandate

Next Steps

Multi-stakeholder Consultations

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Meeting of Experts Output and Follow-up

Spring 2006 Fall 2007 Fall 2008Dec. 2005

Consultative Process

Multi-stakeholder Consultations

• Expert Group Meeting (New York, USA)• Focus on Latin America and the Caribbean (Lima, Peru)• Focus on Western Africa (Paris, France)• Focus on Southern Africa (Johannesburg, South Africa)• Focus on Eastern Europe and CIS (Geneva, Switzerland)• Focus on the Middle East (Cairo, Egypt)• Focus on Asia and the Pacific (Bangkok, Thailand)• Final meeting (Cambridge, USA)

Objective: To develop policy recommendations for enhancing the role of NDBs in promoting economic and social development.

Output: Publication on the role of NDBs/DFIs as a renewed tool of development finance, to serve as an input to the Follow-up International Conference on Financing for Development (Doha, Qatar, 2008) .

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Meeting of Experts: Highlights

Meeting of Experts on“Rethinking the Role of National Development Banks”

(New York, 1-2 December 2005)

Reviewed key substantive issues outlined in the project proposal (background paper)Launched “multi-stakeholder consultations”, organized by FFDO in cooperation with NDBs, RDBs, IFIs and UN agenciesAgreed on a draft model agenda to serve as a framework for a series of follow-up regional meetingsDiscussed a tentative calendar of regional meetings.

Meeting of Experts on“Rethinking the Role of National Development Banks”

(New York, 1-2 December 2005)

Reviewed key substantive issues outlined in the project proposal (background paper)Launched “multi-stakeholder consultations”, organized by FFDO in cooperation with NDBs, RDBs, IFIs and UN agenciesAgreed on a draft model agenda to serve as a framework for a series of follow-up regional meetingsDiscussed a tentative calendar of regional meetings.

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First Regional Consultation: Highlights

First Regional Consultation on “Challenges of National Development Banks in Latin America”

(Lima, Peru, 12-13 June 2006)

• Co-hosted by the Latin American Association of Development Financing Institutions (ALIDE) and Corporación Financiera de Desarrollo (COFIDE).

• Co-chaired by José Antonio Ocampo, Under-Secretary-General forEconomic and Social Affairs, United Nations; Rommel Acevedo, Secretary-General of ALIDE; and Daniel Schydlowsky, President of COFIDE.

• Attended by some 80 representatives from NDBs in Latin America, Asia, and Africa, international organizations (ECLAC, CAF, CAN, IMF, IADB, GTZ), academics and civil society.

First Regional Consultation on “Challenges of National Development Banks in Latin America”

(Lima, Peru, 12-13 June 2006)

• Co-hosted by the Latin American Association of Development Financing Institutions (ALIDE) and Corporación Financiera de Desarrollo (COFIDE).

• Co-chaired by José Antonio Ocampo, Under-Secretary-General forEconomic and Social Affairs, United Nations; Rommel Acevedo, Secretary-General of ALIDE; and Daniel Schydlowsky, President of COFIDE.

• Attended by some 80 representatives from NDBs in Latin America, Asia, and Africa, international organizations (ECLAC, CAF, CAN, IMF, IADB, GTZ), academics and civil society.

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First Regional Consultation: Discussion points

The meeting addressed:Rationale of development bankingBest practices in development bankingFinancial instruments and innovationsRegional financial & technical cooperationCounter-cyclical financing

The meeting addressed:Rationale of development bankingBest practices in development bankingFinancial instruments and innovationsRegional financial & technical cooperationCounter-cyclical financing

Major discussion points:Public service, infrastructures and utilities: potential of NDBsInformation sharing on experiences in the regionRaising funds and harnessing resources from the private sectorEnhancing cooperation at the regional and sub-regional levelsPotential role of NDBs in counter-cyclical financing

Major discussion points:Public service, infrastructures and utilities: potential of NDBsInformation sharing on experiences in the regionRaising funds and harnessing resources from the private sectorEnhancing cooperation at the regional and sub-regional levelsPotential role of NDBs in counter-cyclical financing

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Second Regional Consultation: Highlights

Second Regional Consultation on “The Role of National and Regional Development Banks in Africa”

(Paris, France, 27-28 June 2006)

• Organized by Agence Française de Développement (AFD) in collaboration with KfW (Germany) and the European Investment Bank (EIB).

• Co-chaired by Jean-Michel Severino, CEO, AFD; Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, United Nations; Bruno Wenn, First Vice-President for Sub-Saharian Africa, KfW; and Daniel Ottolenghi, Chief Economist for Development, EIB.

• Attended by some 100 representatives from NDBs in Africa and Europe, international organizations (World Bank), bilateral aid agencies, academicsand civil society.

Second Regional Consultation on “The Role of National and Regional Development Banks in Africa”

(Paris, France, 27-28 June 2006)

• Organized by Agence Française de Développement (AFD) in collaboration with KfW (Germany) and the European Investment Bank (EIB).

• Co-chaired by Jean-Michel Severino, CEO, AFD; Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, United Nations; Bruno Wenn, First Vice-President for Sub-Saharian Africa, KfW; and Daniel Ottolenghi, Chief Economist for Development, EIB.

• Attended by some 100 representatives from NDBs in Africa and Europe, international organizations (World Bank), bilateral aid agencies, academicsand civil society.

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Second Regional Consultation: Discussion Points

The meeting addressed:Evolution of development bankingCase studies: how to address market failures?Roles and instrumentsTools, governance and monitoring of resultsRole of ODA and PPPs

Major discussion points:Reasons for decline in development bankingRole of the StateUtility and use of subventionsRoles of development and commercial banksBanking legislation

The meeting addressed:Evolution of development bankingCase studies: how to address market failures?Roles and instrumentsTools, governance and monitoring of resultsRole of ODA and PPPs

Major discussion points:Reasons for decline in development bankingRole of the StateUtility and use of subventionsRoles of development and commercial banksBanking legislation

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Third Regional Consultation: Highlights

Third Regional Consultation on “The Role of National and Regional Development Banks in Africa”

(Johannesburg, South Africa, 27-28 November 2006)• Co-hosted by the Industrial Development Corporation (IDC) of South Africa

and Development Bank of Southern Africa (DBSA) in collaboration with the Southern African Development Community – Development Finance Resource Center (SADC-DFRC) and the Association of African Development Finance Inatitutions (AADFI).

• Held within a broader context of The Africa Development Finance Week –conducive to the high-level participation and overall success.

• Gathered more than 100 participants, including CEOs of NDBs/DFIs in Africa and Europe, international organizations, bilateral aid agencies, academics and civil society.

Third Regional Consultation on “The Role of National and Regional Development Banks in Africa”

(Johannesburg, South Africa, 27-28 November 2006)• Co-hosted by the Industrial Development Corporation (IDC) of South Africa

and Development Bank of Southern Africa (DBSA) in collaboration with the Southern African Development Community – Development Finance Resource Center (SADC-DFRC) and the Association of African Development Finance Inatitutions (AADFI).

• Held within a broader context of The Africa Development Finance Week –conducive to the high-level participation and overall success.

• Gathered more than 100 participants, including CEOs of NDBs/DFIs in Africa and Europe, international organizations, bilateral aid agencies, academics and civil society.

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Third Regional Consultation: Discussion Points

The meeting addressed:Evolution of development bankingRegional economic integrationRole of NDBs in sustainable developmentFinancial sustainability of NDBsSupport for SMEs & microfinanceMobilization of resourcesEnhancing NDBs’ delivery for developmentCorporate governance and regulation

Major discussion points:Privatization vs. development prioritiesFinancing regional infrastructureParticipation of key stakeholders in capital PPPs and tariff issues for basic servicesDFI fit in public policyNeed for strengthening corporate governance

The meeting addressed:Evolution of development bankingRegional economic integrationRole of NDBs in sustainable developmentFinancial sustainability of NDBsSupport for SMEs & microfinanceMobilization of resourcesEnhancing NDBs’ delivery for developmentCorporate governance and regulation

Major discussion points:Privatization vs. development prioritiesFinancing regional infrastructureParticipation of key stakeholders in capital PPPs and tariff issues for basic servicesDFI fit in public policyNeed for strengthening corporate governance

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Fourth Regional Consultation: Highlights

Fourth Regional Consultation on “The Role of National and Regional Development Banks

in Transition Economies”(Geneva, Switzerland, 4 May 2007)

• Organized by the Financing for Development Office of the UN Department of Economic and Social Affairs (UN-DESA) and the Economic Cooperation and Integration Division of the UN Economic Commission for Europe (UN-ECE).

• Held within a broader context of the Meeting of Experts on Financing for Innovative Development.

• Gathered more than 50 participants, including CEOs of NDBs/DFIs in Europe, international organizations, bilateral aid agencies, academics and civil society.

Fourth Regional Consultation on “The Role of National and Regional Development Banks

in Transition Economies”(Geneva, Switzerland, 4 May 2007)

• Organized by the Financing for Development Office of the UN Department of Economic and Social Affairs (UN-DESA) and the Economic Cooperation and Integration Division of the UN Economic Commission for Europe (UN-ECE).

• Held within a broader context of the Meeting of Experts on Financing for Innovative Development.

• Gathered more than 50 participants, including CEOs of NDBs/DFIs in Europe, international organizations, bilateral aid agencies, academics and civil society.

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Key Messages

Multi-stakeholder Consultations

Expert Group Meeting

Mandate

Next Steps

Key Messages

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I. Filling gaps in financial market development

• Access to finance for SMEs

• Microcredit & Microfinance

• Sustainability & Subsidies

• Legal & financial infrastructure

• Short-term loans• Syndication• Securitization• Equity • Quasi equity • Guarantees• Risk mitigation tools

• Infrastructure projects• Market failures• Complementarity• Subsidiarity• Cooperation with

RDBs & IFIs• Management &

governance issues

Building inclusive financial sectors

Expanding the range of financial products

Providing long-term financing

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II. Improving the business climate

• Exchange of information & raising awareness

• Counter-cyclical financing

• Regional cooperation

• Crowding in the privatesector

• Public-private partnerships (PPPs)

• Linkages with IFIs• Regional integration• Instruments for risk

sharing• Project development• Promotion of business

opportunities

• Equity finance• Direct financing

schemes• Short-term financing• Export financing• Loan guarantee

schemes• Factoring• Technical assistance• Knowledge networks

Reducing volatility of financial markets

Acting as a catalyst for investment

SME promotion and support

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III. Capacity-building

• Development impact• Information sharing• Benchmarks• Culture of evaluation• Results-based

approach• Key indicators• Impact on end-users

• Governance codes• Auditing and oversight• Board composition• Disclosure • Relationship with

government• Operational efficiency• Training

• Banking legislation• Rating• Prudential regulation• Internal oversight• Portfolio risk

assessment

Measuring and monitoring results

Governance, management and

skills

Rating, prudential regulation and

supervision

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Next Steps

Multi-stakeholder Consultations

Expert Group Meeting

Mandate

Key Messages

Next Steps

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Action-oriented Proposals

Common proposals

• Make an inventory of NDBs/DFIs and disseminate information on best practices and lessons learnt

• Strengthen cooperation among NDBs/DFIs, including on capacity-building and technical assistance

• Enhance exchange of information on NDBs between the United Nations system and regional associations of DFIs

Common proposals

• Make an inventory of NDBs/DFIs and disseminate information on best practices and lessons learnt

• Strengthen cooperation among NDBs/DFIs, including on capacity-building and technical assistance

• Enhance exchange of information on NDBs between the United Nations system and regional associations of DFIs

Overall, the regional meetings concluded that NDBs/DFIs have a critical role to play in economic and social development. National development priorities, market environment and client needs tend to evolve over time. NDBs/DFIs need to continually adapt and adjust if they are to respond to changing needs and developmental imperatives.

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Survey and Questionnaire

Survey/Questionnaire ofNational Development Finance

Institutions

Survey/Questionnaire ofNational Development Finance

Institutions

In the context of the ongoing multi-stakeholder consultations, it is proposed to conduct a global survey of national DFIs, based on a questionnaire to be circulated through regional associations, in order to update:

• General information (form, domain of activity, ownership, history …)

• Details on lines of activity and financial products provided (loans, grants, guarantees, equity …)

• Details on financial performance, governance and supervision

• Case studies of best practices and failures

• Suggestions for further analysis

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Thank you!More information: www.un.org/esa/ffd